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Choosing the Right Bank Account

When shopping for a new account, you'll find there are an increasing number of ways to manage your money. Banks offer a wide range of checking and savings accounts. Some are basic. Some pay interest. Others do not.

So what type of account is right for you? The answer depends on a number of factors: 

  • Why do you need the account? 
  • How often are you going to write checks? 
  • How often will you need access your money?

By answering these types of questions, you'll be able to establish a few criteria for picking an account.

The following list provides a good starting point for your analysis.

Checking

Checking accounts offer you a convenient way to pay for bills and other expenses.

Some pay interest if you maintain a minimum monthly balance. Others do not. Whatever your requirements, you should be able to find an account that meets your needs. There are many to choose from. 

  1. Basic Checking Accounts. Also known as a "No Frills" bank account. With this type of account, you get a limited set of services for a small price. You may be charged a fee for each check you write over a certain limit or you may just be charged a monthly fee. Some banks will require you to set up a direct deposit or maintain a minimum balance in order to avoid a monthly fee. Basic checking accounts normally don't make interest payments to their customers.  
  2. Interest-Bearing Checking Accounts. The higher balance you maintain in these type of accounts, the more interest you will earn. If your balance drops below a preset level, you'll be charged a hefty monthly service fee. Interest-bearing accounts normally offer unlimited check writing privileges as long as you comply with the requirements. 
  3. Money Market Accounts. Money market accounts normally invest in short-term obligations such as commercial paper, CDs, or Treasury bills. These type of accounts usually pay a higher rate than checking or savings accounts and a lower rate than CDs. Rates vary according to current market conditions. Money market accounts are different than money market funds for several reasons. First, they are insured by the FDIC. Second, money market accounts are not charged the normal management fee that funds will incur. Money market accounts also place a tighter limit on check-writing privileges (often just 3 per month). They may charge you a maintenance fee if your balance drops below a preset level. 
  4. Asset Management Accounts. Asset management accounts are a type of checking account offered by many brokerage houses and banks. They offer the convenience of one account to take care of all your banking and investment needs. Asset management accounts normally provide unlimited check-writing priveleges and a comprehensive end-of-year statement that documents all of your transactions. Many financial institutions require a higher minimum balance to open an asset management account. You should expect to pay an annual fee.

Savings

Banks typically offer two kinds of savings accounts: passbook and statement. Each pays interest to encourage you to keep your money in the account. You're allowed to make deposits or withdrawals with savings accounts, but you can't write checks. Savings generally pay lower rates than money market accounts or CDs.

  1. Passbook Savings. This is a traditional savings account. Transactions occurring within the account (including interest deposits) are logged in a small booklet that you keep. If you ever lose the booklet, you'll be charged a fee to replace it. Passbook savings are generally offered by banks, savings and loans, and credit unions. They offer a low interest rate and usually don't allow check-writing. Many charge minimum balance fees.
  2. Statement Savings. This type of savings account is similar to passbook savings with one exception. Instead of a booklet, your bank mails you a statement documenting all of your transactions. The statement usually arrives on a monthly or quarterly basis depending on your bank. Statement savings accounts also charge minimum balance fees.

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